Hasn't the interest rates for the PIKs now gone above 16% because they missed their last profit target?
ALL issues relating to the bond issue and club finances
- Thread starter sammsky1
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Hasn't the interest rates for the PIKs now gone above 16% because they missed their last profit target?
To be fair, the situation is confusing - there are various different companies and you really have to look closely at the figures to get a real picture of what is going on. Im not going to pretend that I understand all the detail but I am starting to get a decent idea.
I am quoting EBITDA figures direct from the bond prospectus - there are huge goodwill write offs that seem to mask a lot of the profit that the club makes. Presumably this is all to avoid tax.
As pointed out above, the bit missing in your debt calculation is the rest of the PIK - at some point £70m will go towards paying this off but we dont know if it has happened yet.
There is still quite a bit more excess cash in the club bank account that could also be used for this - with a £75m revolving credit facility (at much lower rates than the PIK) to replace it if required.
I think it might happen in the summer and that is why they are going to pay £70m of it off before then - but fine details of the PIK are unknown.
Confusing by design no doubt.
Yes definitely - we have been pretty much in the dark over the past few years with only the bare minimum being made public by the club in terms of financial statements.
The bond issue means they have now had to open everything up but a complex web of companies and some creative accounting means that the true picture is still somewhat hidden.
More should become clear over the coming months.
the andersred blog: Bond price update - investors making a profit!
The chart below shows the bond price from its first day of trading on 25th January to its closing price yesterday. I have added a line showing the issue price of the sterling bonds (98.089) and a line showing the closing price on 1st March 2010 (the day before the "Red Knights" announced that they were looking at putting together an offer for United). The announcement came on the same day as United announced results for the three months to 31 December 2009.
The first thing to say is that having been the worse performing "high yield" bond issue of 2010, the MU Finance plc bonds are now trading above their issue price. Investors are now showing a profit on their original investment (the same is true for the US$ bonds but I will stick to the sterling issue for ease). Furthermore, this turnaround is emphatically not related to a rise in bonds generally, the "spread" on United's bonds has fallen to a post issue low of 578 basis points (i.e. a yield 5.78% above gilts). The price move is United specific.
You can see from the chart that the bonds started trading well below the issue price. I argued at the time (as did other less biased commentators) that the bonds had been mis-priced and that the issue price did not reflect the inherent risks of the Glazers' business model, something I stand by. As the chart shows, by late February, the price had stabilised and as I wrote at the time, the huge fall in mid-February looked excessive.
The interesting movement in the bond price has happened in March of course. Sky News fisrt reported the existence of the Red Knights on the evening of 1st March, after the markets had closed. The next morning the price rose from 93.75 to 95.00 with all this move occurring prior to United publishing its quarterly results that day.
If United is sold (or if other events mean the Glazer family lose control of the club), the bonds have to be redeemed at 101% of their face value. This makes a probability of there being an offer for United a key influence on the bond price.
There is of course no way of knowing why the price has risen so sharply in March. It is possible that all of the appreciation is due to the bond market reappraising the club as a business. For me, there was nothing of note in the Q4 2009 results statement. Since then the club has announced three new sponsorship deals with Telekom Malaysia, Turkish Airlines (despite one senior manager from the airline being photographed wearing a green and gold scarf at a recent home game, if you don't believe me I know someone who has a photo) and most recently South Africa's MTN.
These sponsorship deals are all "nice to haves" for the club, but I doubt they generate more than £1m each per annum in profit. Half of this extra profit has been wiped out in higher interest costs from the $ bonds. The club has partially hedged the February 2011 coupon payment (at a cost of course), but the August 2010 and all other future payments are currently unhedged. The annual $ coupon payment is fixed at $35.6m. At the time of the bond issue, sterling was trading at $1.61. As I write it is $1.515. This has the effect of increasing the sterling cost of the $35.6m from £22.1m (at the time of the bond issue) to £23.5m today. All that hard work from United's commercial department and most of it is needed just to stand still as the currency falls...... On the pitch of course things have been going very well, but this has little impact on United's long-term ability to pay its debts.
So I don't see what could have radically changed the bond market's view of United's bonds since the start of the month, except of course an increasing belief that the club will be sold and that the bondholders will get their payout at 101%. As I said above, such a supposition cannot be proved, but the bond price move should make those who see a successful bid for United as pie in the sky at least pause for thought.
The chart below shows the bond price from its first day of trading on 25th January to its closing price yesterday. I have added a line showing the issue price of the sterling bonds (98.089) and a line showing the closing price on 1st March 2010 (the day before the "Red Knights" announced that they were looking at putting together an offer for United). The announcement came on the same day as United announced results for the three months to 31 December 2009.
The first thing to say is that having been the worse performing "high yield" bond issue of 2010, the MU Finance plc bonds are now trading above their issue price. Investors are now showing a profit on their original investment (the same is true for the US$ bonds but I will stick to the sterling issue for ease). Furthermore, this turnaround is emphatically not related to a rise in bonds generally, the "spread" on United's bonds has fallen to a post issue low of 578 basis points (i.e. a yield 5.78% above gilts). The price move is United specific.
You can see from the chart that the bonds started trading well below the issue price. I argued at the time (as did other less biased commentators) that the bonds had been mis-priced and that the issue price did not reflect the inherent risks of the Glazers' business model, something I stand by. As the chart shows, by late February, the price had stabilised and as I wrote at the time, the huge fall in mid-February looked excessive.
The interesting movement in the bond price has happened in March of course. Sky News fisrt reported the existence of the Red Knights on the evening of 1st March, after the markets had closed. The next morning the price rose from 93.75 to 95.00 with all this move occurring prior to United publishing its quarterly results that day.
If United is sold (or if other events mean the Glazer family lose control of the club), the bonds have to be redeemed at 101% of their face value. This makes a probability of there being an offer for United a key influence on the bond price.
There is of course no way of knowing why the price has risen so sharply in March. It is possible that all of the appreciation is due to the bond market reappraising the club as a business. For me, there was nothing of note in the Q4 2009 results statement. Since then the club has announced three new sponsorship deals with Telekom Malaysia, Turkish Airlines (despite one senior manager from the airline being photographed wearing a green and gold scarf at a recent home game, if you don't believe me I know someone who has a photo) and most recently South Africa's MTN.
These sponsorship deals are all "nice to haves" for the club, but I doubt they generate more than £1m each per annum in profit. Half of this extra profit has been wiped out in higher interest costs from the $ bonds. The club has partially hedged the February 2011 coupon payment (at a cost of course), but the August 2010 and all other future payments are currently unhedged. The annual $ coupon payment is fixed at $35.6m. At the time of the bond issue, sterling was trading at $1.61. As I write it is $1.515. This has the effect of increasing the sterling cost of the $35.6m from £22.1m (at the time of the bond issue) to £23.5m today. All that hard work from United's commercial department and most of it is needed just to stand still as the currency falls...... On the pitch of course things have been going very well, but this has little impact on United's long-term ability to pay its debts.
So I don't see what could have radically changed the bond market's view of United's bonds since the start of the month, except of course an increasing belief that the club will be sold and that the bondholders will get their payout at 101%. As I said above, such a supposition cannot be proved, but the bond price move should make those who see a successful bid for United as pie in the sky at least pause for thought.
If you look at the time they started rising sterling took a fall as well as investors started shitting themselves at the prospect of a hung parliament.
I reckon the more risk adverse investor took their money out of the ftse and stuck in bonds.
Can you produce something similar for the bond market in general during that period to see if there is a correlation?
I reckon the more risk adverse investor took their money out of the ftse and stuck in bonds.
Can you produce something similar for the bond market in general during that period to see if there is a correlation?
It's anderred's analysis. Could always drop him a line.
I'm sure he'll drop me a PM he's loitering in the newbies at the moment.
Maybe this is someone the mods could look at promoting him as his input would be invaluable up here.
From the article:
"Furthermore, this turnaround is emphatically not related to a rise in bonds generally ...The price move is United specific."
He's in the newbies? Are you sure you arent getting confused with someone else?
No he PM'd me the other day.
It's definitely him.
Fair enough I only skim read the article and looked at the timeline.
If Andersred is on here then we should get him up here asap - make a thread in the Mod/Admin forum or something - cant fault his analysis and it would save me the time of spending time going through accounts which I hate doing!
I dont actually agree with all of his conclusions so would be interested to discuss it with him.
PM GB mate.
I thought the redemption price was higher than that (121%) but I assume you've got that direct from the prospectus.
Clearly the price is anticipating the club being sold and that a premium will be paid on the bonds or that the bonds are likely to be bought up by the RK's as part of their strategy. Maybe that part of the strategy is under way. However, market sentiment can be fickle and that can easily go the other way should the Glazers reject a formal offer, if or when it comes. On the other hand, the price would continue to be buoyant if it is assumed a bidding war is under way.
I stay out of these threads because I know nothing about finances and the economy and all that bullshit.
But it is funny that as soon as we go on a winning run these threads die down pretty quick.
After the Everton loss there were like 3 or 4 of these threads with people posting like crazy.
There is one thing I want to know:
Have we been winning because of the Glazers, or have we been winning because of Fergie's brilliance?
Sorry if this has been asked many times before.
But it is funny that as soon as we go on a winning run these threads die down pretty quick.
After the Everton loss there were like 3 or 4 of these threads with people posting like crazy.
There is one thing I want to know:
Have we been winning because of the Glazers, or have we been winning because of Fergie's brilliance?
Sorry if this has been asked many times before.
Fergie's brilliance, our general structures as a club, and the players
Would any other ownership have shelled out so much money the summer before we did our European double? And add Berbatov the next season for over 30 mill?
Or not passed on most of the Ronaldo money
Or increased ticket prices so much
Or saddle us with more debt
etc etc etc
Or increased ticket prices so much
Or saddle us with more debt
etc etc etc
Well Fergie is definitely the vital part of the equation, he has built yet another great squad, in fact possibly his greatest ever. But I also believe that it is important to recognise that he has been given the perfect environment to work in - without any interference from the owners in footballing matters (compare Abramovich meddling in transfers, constantly changing managers and apparently turning up in the dressing room to berate his players) and full support in the transfer market (according to Fergie himself).
There are negatives about the current owners but I believe these particular issues are their biggest positive.
No I think it has more to do with the emergence of the RKs and the G&G campaign that has led to an enquiry, like this one, as to what the current debt situation actually means. The dichotomy of views is both interesting and instructive and many with little knowledge of "high finance" are probably learning quite a bit as a result.
It has to be down to Fergie and his team plus the fact that the Glazers, up until this season, appear to have provided them with the wherewithal to buy the players needed. There may have been a departure on this following Ronaldo where the greater part of his money appears to be earmarked for debt repayment. Fergie covered it up neatly by saying there was nobody worth bringing in for the money being asked. Umm, I wonder !
The supporters trust looking to buy Manchester United, the Red Knights, is poised to table a £1.25 billion bid for the club by June in a deal that will see fans owning a majority stake, according to UK newspaper reports.
According to the Observer, around 30 wealthy Red Knights investors would take control of United by setting up a new company that would later invite fans from around the world to subscribe to new shares. The proposal is being studied by the bidder's financial adviser, Japanese bank Nomura.
The move would resemble the ownership structure of Spanish rival Barcelona which is owned by its fans and profits are ploughed directly back into the club. United's profits are currently being used to service huge debts acquired by the Glazers when they bought United in 2005.
The Red Knights are backed by investment banker Keith Harris and Paul Marshall, founder of London-based hedge fund Marshall Wace.
The newspaper also reports several sovereign wealth funds have expressed an interest in the Red Knights and five British individuals are willing to invest £10 million each.
United's chief executive, David Gill, defended the Glazers' ownership of United, saying funds are available for the manager to use in the transfer market this summer.
According to the Observer, around 30 wealthy Red Knights investors would take control of United by setting up a new company that would later invite fans from around the world to subscribe to new shares. The proposal is being studied by the bidder's financial adviser, Japanese bank Nomura.
The move would resemble the ownership structure of Spanish rival Barcelona which is owned by its fans and profits are ploughed directly back into the club. United's profits are currently being used to service huge debts acquired by the Glazers when they bought United in 2005.
The Red Knights are backed by investment banker Keith Harris and Paul Marshall, founder of London-based hedge fund Marshall Wace.
The newspaper also reports several sovereign wealth funds have expressed an interest in the Red Knights and five British individuals are willing to invest £10 million each.
United's chief executive, David Gill, defended the Glazers' ownership of United, saying funds are available for the manager to use in the transfer market this summer.
I'd be a very happy man if that deal would go through, the debt gone, the profit flowing back into the club, fans owning shares
Mate, our net spending is around £5m in 5 years. In the 5 years prior to the take over it was around £105m. So the answer to your question is, "yes, the Plc".
What would both set of figure be without the Ronaldo purchase/sale
That takes in to account the proceeds from Ronaldo's sale though correct?
Could that be argued to be an "extraordinary item" in accounting speak?
Whats the differential in net spend wihout Ronaldo's sale?
Statistics can be manipulated and interpreted how you like, but the £5m v £105m seems to be a bit drastic for the purposes of comparison...
Edit: Topper you swine with your short reply that beat me to it!!!
But the Ronaldo money remains unspent and will, more than likely be used to reduce debt.
We won't know yet. It could be that the Ronaldo sale was required in order to balance the books due to previous (relative) high spending.
I think it's naive to write off the Ronaldo money as an "extraordinary item" because that assumes the Glazers hadn't planned for the sale. When in fact it was pretty common knowledge even amongst fans that he was on his way.
We'll have a better idea by the end of the summer how much of the Ronaldo money is going to be spent/how much of it has already been accounted for in previous incoming transfers (Valencia, Tosic, even Berbatov?).
If we have a net spend that's anywhere near that under the PLC (not even taking into account inflation and the increased amount of income) I'd be very surprised.
I worked it out, including Ronaldo, Obertan and Valencia to be a net spend of £10m since they took over.
When you take into account price rises over and above inflation as well as the extra capacity from 67k up to 76k and the massive increase in TV deals, then they've put nothing into the transfer kitty, even without the net £40-50m from the Ronaldo sale (£80m less inbound players and tax).
We certainly know that of the £140m in the accounts in December (£80m of which came from the Ronaldo sale), around £100m was used to service debts. Hence the Glazers will need to borrow money if they wish to spend big this summer.
By extraordinary, I meant it wasn't a run of the mill transaction, that will be experienced every year/two years, hence it has a more than proportionate effect on the financials reported.
I however am in agreement that I would expect the net spend under the PLC to be a lot higher than that experienced following the takeover.
Utter tosh. David Gill has said that the money (£61m) is ringfenced for transfers.
Watch some tard miss the white text and take me seriously.
No!!!!! How many times...
Calm down fella:
An Extraordinary Item : "Gains or losses included in a company's financial statements, which are infrequent and unusual in nature. These are usually explained further in the "notes to the financial statements."
It's no more 'extraordinary' than any other transfer activity Heardy. Only difference being this was for more money than your average sale. But Madrid didn't donate money to us out of the kindness of their hearts, we did sell them the best player at the club, nigh in the world at the point. That's a hell of a thing to take away from a side. The net spend is the net spend, the squad we have now is a direct result of all our past transfer activity, and since the Glazers came in, it's been next to nothing
I appreciate that mate, but if a bank were to conducted an analysis on the financial performance of whichever "Red Football" / "Manchester United Ltd" is the main trading entity.
When considering long term longevity in terms of profitability and operational performance, such a sale is deemed extraordinary on the grounds that revenue income from transfers of £80m are not a sustainable revenue stream as they are not to be expected every Summer.
I do not mean the banks will look at the receipt along the lines of "wow, how extraordinary..." Real Madrid have decided to pump eons of cash in to a rival club on the European stage out of the goodness of their heart in light of us having idiots for owners .
As I recall they promised 25m a year for players plus another 30m every few years when a marquee player came available...correct?
I make that 125 million for the five years since plus at least another 30m for a total of 150 million+
I think the net spending argument is a bit of a red herring myself and I prefer to leave it out when talking anti-glazer.
I think the Ronaldo sale has tilted the argument in favour of us anti-glazers but I think when we bought Hargreaves, Anderson, Nani, etc, and possibly even Berbatov there is no way the Glazers could have known they were getting £80m for Ronaldo.
I'm still convinced we only got that much because Sterling dropped in Madrid's favour meaning they could offer more at no extra cost to them.
I think the Ronaldo sale has tilted the argument in favour of us anti-glazers but I think when we bought Hargreaves, Anderson, Nani, etc, and possibly even Berbatov there is no way the Glazers could have known they were getting £80m for Ronaldo.
I'm still convinced we only got that much because Sterling dropped in Madrid's favour meaning they could offer more at no extra cost to them.
Why leave net spending out?
That's like leaving costs out when declaring your profit.
Even before the Ronaldo sale, they weren't putting any of their own money in. Sales and ticket price increases covered the net difference.
It's all very difficult to see clearly but their biggest concern will be getting rid of the 200m odd PIKs which ratchet up to over 16% pa in August. If they throw just about everything at that, then they will have to use the 75m credit facility for new players - if required. That will be further debt but small by comparison. A lot depends on revenues going forward as well as containment of costs. A smaller squad has already been hinted at but the biggest expense is key player wages and I doubt that can be reduced radically without making United uncompetitive on the field.
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